We are rapidly moving into a new economy, according to Tien Tzuo, author of SUBSCRIBED: Why the Subscription Model Will Be Your Company’s Future – and What to Do About It. This new economy is one in which the experience of having access to something when and where you want it has become more important than buying or owning it.
Look at your row of CDs and DVDs and the chances are that few, if any, were purchased over the past year or so. Who needs to buy music or movies when Netflix and Spotify and Amazon will let you enjoy them at your convenience, for the cost of a monthly fee?
Clearing out my office recently, I came across all sorts of software disks, from Microsoft Office to Adobe Photoshop, that I’d shelled out for over the years. All out of date. Today, the companies behind those products are no longer interested in selling them – and are struggling to prevent otherwise law-abiding folk from copying and sharing their intellectual property. Now, they expect customers to pay an annual sum for the convenience of always having the latest version.
In 2016, Unilever acknowledged the challenge of the subscription economy by paying a billion dollars for a startup called Dollar Shave Club, whose simple business model lay in posting its customers razor blades every four or eight weeks as a – relatively – reasonably priced alternative to paying over the odds for them in their local pharmacy or grocery store.
But the blades were just the beginning. As CEO Michael Dubin was quoted in Ad Age recently as saying, Dollar Shave Club is now “moving into being a company that sends you everything you need in the bathroom to look, smell and feel your best”. In other words, by selling directly to consumers, Unilever is increasingly setting out to compete with the retailers which have historically been its route to market. Just as Procter & Gamble did when it launched Gillette On Demand, and Nestlé did way back in 1986 with Nespresso.
The subscription model is being introduced into the business world at an extraordinary rate. Why sign a lease for an office when you can rent a flexible amount of space from Regus? If you are a frequent flyer in California, you could pay $1,950 per month for an unlimited number of flights from Surf Air.
So how does the wine industry fit into the subscription economy? First, it could be argued that, along with various book and record clubs, wine got into the game early. Distributors like the UK’s Wine Society, and Laithwaites Direct Wines and its global offshoots, pioneered regular deliveries of pre-selected products half a century ago. Large numbers of wine drinker really don’t get much fun out of wine buying; allowing someone else to do the choosing has a lot of appeal.
To make their margins, such businesses have generally relied on creating their own private labels, which has proved something of a handicap: consumers like to see familiar retail brands. Today in the US, however, members of the ever growing number of winery subscription schemes, or ‘clubs’, receive bottles with the same brands as they see in their favourite restaurants. According to a recent report by Sovos and Wines & Vines, the value of direct to consumer shipments in the US could top $3bn this year, much of it in the form of subscription cases.
The problem with the current US model, however, is that the churn – the rate at which customers leave the programme – is high. After a couple of years of receiving Winery X’s bottles, people get bored and want to switch to Winery Y or Z. Acquiring and keeping wine club members can take up a lot of time and money. Those costs would be far smaller for each producer if a number of wineries worked together; and if that were to happen, the broader range on offer might hopefully also reduce the churn.
Surprisingly, even groups of wineries under the same ownership have been slow to pick up on the potential this offers – apart from go-ahead thinkers like Jean-Charles Boisset with his Ambassador programme – but I’m betting that it’s the way the wind is blowing.